On May 17, 2023, the Federal Trade Commission (FTC) challenged Amgen Inc.’s (Amgen) proposed acquisition of Horizon Therapeutics plc (Horizon). The complaint is significant in three respects.

• First, the FTC asserts that the transaction would harm competition in markets in which one of the merging parties (Amgen) does not, and would not otherwise, compete. It therefore more closely represents a “conglomerate” merger in that the transaction will not increase concentration in any relevant antitrust market and does not trigger the traditional “structural presumption” of competitive harm in horizontal transactions. Conglomerate merger challenges fell out of favor decades ago, but Chair Lina Khan has expressed a desire to revive them. This appears to be her first attempt.
• Second and relatedly, the case represents yet another recent merger case in which enforcers will have to argue that the parties’ commitments are insufficient. Here, the commission has hypothesized that Amgen will engage in rebating practices it has committed not to undertake. The commission may therefore be forced to litigate a behavioral fix, something the U.S. Department of Justice (DOJ) did unsuccessfully in AT&T/Time Warner and in United Healthcare/Change.
• Third, the revival of conglomerate merger reviews will affect enforcement efforts over the next few years. If the FTC is successful in this case, we can expect to see more conglomerate merger challenges, both within the pharmaceutical sector and beyond. If the FTC is unsuccessful in this case, we may still see efforts to address conglomerate mergers, either in subsequent enforcement actions or in broader rulemaking or legislative efforts.

The Transaction

On December 12, 2022, Amgen announced its planned acquisition of Horizon for $27.8 billion. The purchase price represented a nearly 50 percent premium over Horizon’s recent share price. Horizon presently markets several drugs used to treat rare autoimmune and inflammatory diseases such as thyroid eye disease (Tepezza), gout (Krystexxa), and urea cycle disorder (Ravicti). In the transaction agreement, the parties set an initial outside date of June 12, 2023, but provided for extensions through December 12, 2023. The parties received a Second Request in January 2023 and complied with the Second Request in April. The transaction was also subject to interest on Capitol Hill, with Senator Elizabeth Warren (D-MA) registering her concern about the transaction as part of what she characterized as “rampant consolidation in the pharmaceutical industry.”

The Complaint

In its May 17 complaint, the commission alleges that the transaction will substantially lessen competition, or in the alternative, tend to create a monopoly, by “enabl[ing] Amgen to leverage its portfolio of blockbuster drugs to foreclose actual or potential rivals” in the markets for drugs approved by the U.S. Food and Drug Administration (FDA) to treat thyroid eye disease (TED) and chronic refractory gout (CRG). The FTC contends that the acquisition will allow Amgen to engage in a cross-market rebating or bundling strategy where it “provides greater rebates on one or more of its [existing] blockbuster products to secure favorable formulary placement for” two Horizon products it would acquire, Tepezza and Krystexxa. In doing so, the FTC believes Amgen will “foreclose or disadvantage future rivals in these markets, raise their barriers to entry, and dissuade them from competing aggressively.”

Breaking from modern merger precedent, the complaint does not assert that the transaction would reduce current or future competition between the parties. Because there is no increase in concentration, the complaint does not assert that the transaction is presumptively unlawful under United States v. Philadelphia National Bank, a presumption that typically benefits the agency in merger litigation. The complaint seeks to import the “ability and incentive” framework used in vertical merger cases.

In coming to its conclusion that “[p]ost-Acquisition, Amgen will possess the ability and incentive to sustain and entrench its dominant positions in the markets for FDA-approved TED and CRG drugs by leveraging its portfolio of blockbuster drugs,” the FTC focused on four factors: 1) pipeline entrants; 2) past conduct by the parties; 3) the volume of revenue from Amgen’s alleged “blockbuster” drugs; and 4) market trends.

• Pipeline Entrants—The complaint identifies potential entrants into the TED and CRG markets to establish the potential competitors Amgen may foreclose under the alleged cross-market rebating or bundling strategy. In particular, the agency suggests that drugmakers Viridian and Immunovant are imminent competitors in the TED market. With respect to Viridian, the commission notes that the drug maker is “advancing multiple candidates through clinical programs for the treatment of patients with TED that could threaten Tepezza’s monopoly,” including “a Phase 3 clinical trial for its leading candidate” and “developing three subcutaneous products with the goal of providing a more conveniently administered therapy to patients with TED.” With respect to Immunovant, the complaint states that the company “is currently developing Batoclimab as a self-administered subcutaneous injection for treatment of TED and expects Phase 3 top-line results to be available in the first half of 2025 and to launch its product in 2026.” The complaint also alleges Horizon’s CRG treatment, Krystexxa, is likely to face competition in the near future from Selecta, which recently initiated a “Phase 3 clinical program of a candidate, SEL-212, for the treatment of CRG.” The complaint alleges Selecta “could threaten Krystexxa’s monopoly when it comes to market as early as 2025.”
• Past Conduct—The complaint describes the parties’ past pricing and negotiating conduct to support its claim that Amgen will have both the incentive and ability to engage in an anticompetitive cross-market rebating or bundling strategy post-acquisition. Moreover, the agency claims that Amgen is likely to engage in a post-acquisition cross-market rebating strategy because it alleges that the company “has [already] deployed this very strategy to extract favorable terms from payers to protect sales of Amgen’s struggling drugs.” The commission goes on to cite past negotiations where Amgen “condition[ed] rebates (or offering incremental rebates) . . . in exchange for preferred formulary placements for Amgen drugs in other, unrelated product markets.” The complaint also cites Regeneron Pharms., Inc. v. Amgen Inc., No. 22-697, 2023 WL 2587809 (D. Del. Mar. 21, 2023), where a district court denied Amgen’s motion to dismiss an antitrust complaint founded on similar multiproduct conditional rebating practices.
• Revenue Earned on Amgen’s “Blockbuster” Drugs—In determining what qualifies as a “blockbuster” drug in Amgen’s portfolio, the complaint highlights “nine different drugs that generated more than $1 billion in annual net sales in 2022, and [were] in high demand by PBMs, payers, and physicians.” In particular, the commission alleges the “sheer magnitude and/or predictability of the rebates that Amgen can offer on its high-volume drugs as part of its cross-market bundles may ensure PBMs and payers grant Amgen’s products preferred status,” thereby making it “effectively impossible for smaller rivals, such as potential entrants to the TED and CRG markets, to match the value of bundled rebates that Amgen would be able to offer.”
• Market Trends—The complaint asserts two “market trends” or “market realities” are likely to “increase Amgen’s post-Acquisition ability to entrench Tepezza’s and Krystexxa’s monopolies through these multi-product contracting.” First, the commission reasons that because the three largest PBMs are “now vertically integrated with payers that manage patients’ medical benefits” in addition to their pharmacy benefits,” PBMs frequently offer cross-benefit management. Further, because “[t]his growing trend towards cross-benefit management is removing a market structure that previously siloed pharmacy and medical benefits from one another,” “Amgen [has a heightened] ability to implement cross-benefit bundles that link pharmacy benefit drugs, like Enbrel, and medical benefit drugs, like Tepezza and Krystexxa.” Second, the FTC alleges that “Tepezza’s interaction with PBMs is also poised to grow because Horizon is developing a subcutaneous formulation of the drug that promises greater ease of use relative to its current, intravenous mode of administration.”

Conglomerate Merger Enforcement

Until this action, it had been many years since the U.S. antitrust agencies challenged a purely conglomerate merger in which there was no economic relationship between the merging parties' product lines. From roughly 1950 to 1980, the enforcement agencies challenged some conglomerate mergers under the theory that the merger “entrenched” a merging party’s competitive advantages and made it more difficult for smaller rivals to succeed. For example, in FTC v. Proctor & Gamble, the U.S. Supreme Court upheld an earlier FTC decision that a product extension merger violated Section 7. Competition in the household bleach market was threatened, the Court held, because Clorox, already a dominant player in bleach, would have the benefit of Proctor& Gamble's advertising discounts, retailing distribution network, and significant financial resources. The court reasoned that the merger would entrench these advantages, raising barriers to entry, and dissuading smaller firms from aggressively competing.

Conglomerate merger challenges fell out of favor because they were recognized as inconsistent with modern antitrust policy. The FTC’s complaint raises the troubling specter of departing from these modern antitrust norms.

Litigating the Fix

The complaint makes no mention of Amgen’s commitment not to offer multiproduct rebates for any of the acquired Horizon products. As Amgen explained in a May 16 press release, “we committed that we would not bundle the Horizon products raised as issues; however, the commission still decided to pursue this path.” In recent years it has become commonplace for defendants to offer divestitures or other commitments to ameliorate an enforcer’s concerns, and then to litigate that “fix” as part of its defense in the merger trial. Courts generally account for these commitments, including in the DOJ’s unsuccessful challenges to AT&T/Time Warner and United Healthcare/Change. It will be interesting to see if the FTC can overcome these and other precedents.

Implications

The complaint represents a novel approach to attacking pharmaceutical mergers, particularly ones in which either party holds “blockbuster” drugs. The case may represent a synthesis of Chair Khan’s previously announced desire to revive conglomerate merger enforcement and Commissioner Rebecca Slaughter’s past efforts (while serving as Acting Chair) to develop new theories by which to challenge pharmaceutical mergers.

In the near term, the FTC’s action signals its intention to more closely scrutinize mergers involving large pharmaceutical companies, even in the absence of traditional horizontal or vertical overlaps.

• If the FTC’s effort to revive conglomerate merger enforcement is successful, then a far broader range of industries may be affected. We may also see fewer pharmaceutical transactions, with more promising pipeline drugs stranded inside firms without the funding or expertise to successfully commercialize them.
• In the more likely event of an FTC loss, we may still see the FTC bring other conglomerate merger challenges, as FTC leadership has stated that they view litigation losses as a way to encourage new legislation. We may also see more draconian measures, such as an FTC rulemaking seeking a blanket ban on certain transactions or conduct.